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UTILITIES KEEP IOWA IN LIMBO

The utility assault on policies promoting renewable energy in Iowa continues. Up to 80 MW of wind power is at stake. As ammunition the utilities are using the Federal Energy Regulatory Commission's rejection of California's Biennial Resource Plan Update (BRPU). According to the utilities, IOWA's Alternative Energy Production law flouts federal law.

The assault on policies promoting renewable energy continues in Iowa with state utilities firing away at a law which requires investor-owned utilities to purchase 105 MW of renewable energy from independent power producers. At risk in the skirmish is up to 80 MW of wind power to be developed by Midwest Wind Developers, a partnership between US Windtricity and the Zond Iowa Development Corp. Another 18 MW wind project proposed by Northern Alternative Energy is also at risk.

As ammunition before the Iowa State Utilities Board and the Federal Energy Regulatory Commission (FERC) the utilities are using FERC's rejection of California's Biennial Resource Plan Update (BRPU), which would have authorised over 500 MW of new nameplate wind capacity. The FERC this year ruled the BRPU renewables auction invalid.

An earlier attempt by utilities to get the pricing provisions for renewables under the Alternative Energy Production (AEP) law repealed failed. The law stipulates a fixed price of $0.06/kWh over 33 years. The utility sponsored legislation for a repeal never passed off of the House floor in the spring. A subsequent effort to have state tax credits for utilities offset the subsidy for renewables also failed. These measures could be revived in January, however, and utility lobbyists are already allegedly at work on new approaches to a repeal of the AEP legislation as well.

Mid-American Energy Co, the utility created out of the summer merger of Midwest Power Systems and Illinois/Iowa Gas & Electric, is the most vocal opponent of the AEP law. "The mandatory Iowa price is more than twice the cost we believe the federal law requires us to pay when we buy electricity from alternative energy producers. It is an additional cost paid by our customers," stated Lynn Vorbrich of Midwest Power Systems when requesting the Iowa Utility Board and FERC to overturn the law in June. "If the state of Iowa, as a matter of public policy, wants to subsidise alternative energy production, then the cost should be paid by all electric customers, not just customers of investor-owned utilities. The Iowa law is not consistent with federal law, and it is discriminatory." The utility claims the AEP would cost it $17 million because the real costs avoided by using renewables and not other power plant are just 1.5 cents/kWh. The AEP's $0.06/kWh was derived from calculating the avoided cost of a base load coal fired plant.

The two key legal arguments put forward by utilities are that the AEP violates the Public Utility Regulatory Policy Act (PURPA) because, like the arguments used successfully by Southern California Edison on the BRPU, the pricing was not determined by an "all source bid;" and that the AEP law is an attempt to regulate wholesale electric energy transactions in interstate commerce under the Federal Power Act, which is an activity under exclusive jurisdiction of FERC.

The Iowa Utilities Board sided with the wind industry in July when it rejected Mid-American Energy's claims that a state legislature may not empower its state regulatory agency to promote specific technologies or direct which type of power a retail utility may buy. The utility "fails to distinguish between appropriate state regulation of the purchase side of wholesale transactions, on the one hand, and the FERC's proper regulation under the Federal Power Act of sellers in wholesale transactions, on the other," it said.

The board also complained that Mid-American Energy seemed confused about PURPA's application in the case and asked FERC to refrain from interjecting itself into a state policy issue -- not the first time this request has been made in recent months. It pointed out that the utility had not proved that the AEP's renewables price was any different than the PURPA avoided cost rate. But such a comparison was essentially irrelevant, said state regulators. "Iowa's AEP statutes were adopted independently of PURPA, not as a means to implement PURPA," adds the July 13 filing to the FERC.

Hap Boyd, director of regulatory affairs for Zond Systems says there are several pricing alternatives: state regulators could file a new rate for FERC approval; a market-based rate could be established through a competitive bidding process; and utilities and independents could negotiate a cost-based rate under the Federal Power Act. This latter option was the one he favoured. "FERC would have to look at wholesale power rates and determine whether the cost-based rate was just and reasonable. They would also have to determine if the selling entity -- Zond -- had undue market power. Obviously, we are little guys and do not," says Boyd. While he will not speculate what this alternative rate might be, he points out that it would have to include Zond's normal profit margins.

The AEP law was passed in 1984 but was not adopted by state utility regulators until 1992. The foot dragging in pushing wind power in one of America's most promising regions may reach another milestone on October 30 when all parties to this regulatory bickering will present another round of what may seem to be regulatory gibberish. Hopefully, this next round of more hot air may maintain a market in the US which is desperate for real -- not promised -- wind projects.

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